FHA finances apartment buildings. Now you know.

by Gina Pogol
October 21st, 2010

Want to be a landlord? FHA insures mortgages for the construction, rehab, and purchase of apartments. Finance your building with FHA-approved multifamily housing lenders.

What kind of down payment is required?

Typically 15 percent, but your mortgage is limited to the lower of these four calculations:

  1. 85 percent of the appraised value
  2. 85 percent of the purchase price
  3. Loan limits as defined by law
  4. The mortgage amount supported by 85% of the property’s net income

Commercial real estate loans are different because the income for the mortgage payments is supposed to come from the property income. So the property is evaluated very carefully before such a loan is approved. FHA underwriting analysis must determine that there is enough project income to repay the loan, taking into account all necessary project expenses.

What sort of loan terms are available?

You can get a mortgage with a term of up to 35 years, but the project can’t be falling-down. It must have an economic life expectancy of at least 13.33 years, which is long enough to permit a ten-year mortgage. FHA determines your maximum mortgage term by taking the building’s life expectancy and multiplying it by 75 percent. So if you had a project with a life expectancy of 40 years, your term could be 75 percent of that, or 30 years.

What kind of buildings can you buy?

There must be at least five units (four or fewer come under the regular residential program) and they have to have complete kitchens and baths (no rooming houses or hotels).

How do you apply?

You can apply through a Multifamily Accelerated Processing-approved lender, which puts together an underwriting package and submits it to HUD for review. If the proposal meets FHA program requirements, the local Multifamily Hub or Program Center issues a commitment to the lender for mortgage insurance. Understand that you won’t even know what your loan amount will be until the property has been appraised and your application has been underwritten.

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